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Solvency II rules stronger than ICAS

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Responding to the idea that new Solvency II rules are weaker than Britain’s existing regulation for the insurance industry, Dr Andreas Tsanakas (pictured), Cass Business School, says…

I find this plainly misleading. If the new rules were weaker, they would not be as troublesome to implement! In fact the new rules are much stronger than the current UK regime (called ICAS), in respect of the standard they set for internal processes, systems and governance. The quantitative capital requirements under Solvency II abide by a somewhat different technical principle than ICAS, in the way that long term liabilities are dealt with. For some risks, this means that Solvency II will indeed produce lower capital requirements. But this is not to say that the Solvency II regime is overall weaker – it is different.
 
It is true that the cost of Solvency II implementation is very high. A great deal of money is being spent on staff and systems in order to move towards compliance with Solvency II requirements. There are certainly positive aspects to this, as preparation for Solvency II is already raising the standards for risk management across the UK insurance industry. However, the concern that the cost of implementation may outweigh the business benefit is justified. If resources and attention are diverted into compliance activities, this can be at the cost of entrepreneurial activity, product innovation etc.

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